The Court of Session as a ‘fairy godmother’ in company law and A Petitioners (2024 SLT 796)

David Sellar from the Faculty of Advocates provides an in-depth analysis of the decision in A Petitioners (2024 SLT 796), examining the role of the Court of Session’s unique power, nobile officium, and potential pitfalls in the interplay between company articles and company law.

Introduction

It is difficult to imagine the Inner House of the Court of Session acting as a fairy godmother to a company in distress. However, that colourful description could be applied to the decision of the Extra Division (‘the Court’), comprising Lords Malcolm and Armstrong and Lady Wise, in A Petitioners (2024 SLT 796).

In that case, the Court exercised its extraordinary equitable jurisdiction, the nobile officium, in respect of a private company, which was referred to in the case as ‘C Ltd’, the names being anonymised to preserve confidentiality. More specifically, the Court exercised that jurisdiction, arguably like a magic wand, to replace a deceased shareholder, B, with his executors (‘the B executors’) as the registered holders of his shares (‘the B shares’). That was done to remedy the paralysis that B’s death had caused to C Ltd and which threated its survival.

The interest in this decision is shown by it having been reported in the most recent issue of Butterworths Company Law Cases, [2025] 1 BCLC 514, although under the anglicised name of ‘Re A’.

This article examines that decision. The conclusion reached is that there are legal difficulties with the exercise of the nobile officium, even if it was helpfully pragmatic. Another solution, which was rejected by the Court, was an order under what is now Section 125 of the Companies Act 2006, rectifying C Ltd’s register of members by substituting the B executors for B as the registered holder of the B shares. It is suggested here that such an order would have been less problematic, in legal terms, than the exercise of the nobile officium.

For convenience, this article uses only the term ‘registered holder’ of shares rather than also using the synonym ‘member’ of a company holding shares.

The facts and the application

The single, brief opinion of the Court (‘the Opinion’) was delivered by Lord Malcolm. The facts as set out in the Opinion are not wholly clear but this summary should be sufficiently accurate.

B and D had set up C Ltd and each of them had been a director. They each held one half of the issued share capital. The shares held by D are referred to here as ‘the D shares’. C Ltd’s articles of association (‘the Articles’) included an article – ‘the Consent Article’ – which provided that certain matters had to be approved at a meeting of its directors, which included B and D or their respective successors as directors. The Consent Article applied to, inter alia, the raising of additional finance, the grant of security and the appointment of an additional director.

D had died and his son had been appointed as a director and his successor for the purpose of the Consent Article. The D shares were vested in his executors (‘the D executors’), under the Succession (Scotland) Act 1964. However, the D executors had not become the registered holders of the D shares.

B then died. The B executors still had to apply for confirmation, which was expected to take some months because the estate was complex. In the meantime, C Ltd was in financial distress and urgently needed further finance.

The B executors were advised that, under Section 14(1) of the Succession Act, they had no title to the B shares until confirmation. In particular, they had no power to appoint a director as the successor to B for the purposes of the Consent Article. In these circumstances, the B executors applied to the Inner House to exercise, as it alone could, the nobile officium to rectify C Ltd’s register of members by substituting themselves for B, as the registered holder of the B shares. That was to allow an additional director to be appointed and to be B’s successor under the Consent Article.

It was necessarily conceded that C Ltd’s register could not be rectified under Section 125 of the Companies Act. The B executors offered an undertaking to the Court that they would not resign their office before confirmation and that they would seek confirmation as soon as possible and pay all taxes necessary for confirmation.

It need hardly be added that there was no opposition to the application. Indeed, there was presumably positive support from D’s son and the D executors, as well as the main beneficiaries of B’s estate.

The need to infer that support illustrates that the brief Opinion does not fully rehearse the facts. It is not actually said that C Ltd was a company registered in Scotland. In addition, the Opinion does not include, even in an appendix, the pertinent Articles. The Opinion only implies that the Articles provided that the registered holder of the B shares had the right to appoint one director as successor to B and the holder of the D shares a director as successor to D.

The Opinion also leaves unanswered the question of whether the Articles expressly removed, or at least restricted, the right of the B executors to be registered as the holders of the B shares. Restriction of such a right is common, particularly in this kind of company, which is often referred to as a ‘quasi-partnership’. The restriction may be a veto by the directors or some form of pre-emption rights in favour of other registered holders. However, a director’s veto must be positively exercised and pre-emption rights can be waived. As will be explained, the possible right of the B executors to be registered is significant in relation to Section 125 of the Companies Act.

The Court’s decision

The Court held that this was an appropriate case in which to accept the undertaking to exercise the nobile officium and to make the order sought.

As regards Section 125, the Court held that it was difficult to say that the B executors’ names required to be on C Ltd’s register of members, since they did not have title to the B shares, under the Succession Act, until confirmation.

That was sufficient to distinguish the trio of English authorities, each of which concerned a company registered in England and Wales. That trio comprised Re Lancashire Cleaning Services Ltd [2017] Bus LR 1235, Ellott v Cimarron UK Ltd [2017] All ER (D) 156 and Williams v Russell Price Farm Services Ltd [2021] 2 BCLC 454.

In each of those cases, a judge of the Companies Court had been prepared to make an order under Section 125 of the Companies Act, substituting executors for deceased registered shareholders, even before the executors had obtained probate. Such an order was urgently required to prevent corporate paralysis. In Williams the order was conditional on the giving by the executor of an undertaking which was in very similar terms to that accepted by the Court.

However, the Court held that those English decisions were based on English law, under which an executor derives his title from the will and that the estate vests in him on death (In re Goodman [2014] 1 Ch 186).

Scots law was different. The general rule was that prior to confirmation an executor could not intromit with the estate (see Mackay v Mackay 1914 SC 200, in which it was said that an act of an unconfirmed executor was retrospectively validated) and, for example, could not grant a discharge of a debt (Chalmers’ Trs v Watson (1860) 22D 1060). There were only limited exceptions, such as voting in a sequestration (Chalmers’ Trs).

For completeness on Section 125, it was explained to the Court that the Articles did not provide that a deceased’s shares devolved on his executor and that the executor had a right to become the registered holder. By contrast, the articles in Ellott did include such provisions.

Having decided that Section 125 was not available, the Court went on to hold that a gap was produced in Scots law but that the gap could be filled by exercise of the nobile officium.

The Court had no difficulty in accepting the urgency of C Ltd’s situation and that, if possible, it should provide a practical solution. The other option of appointing a judicial factor to C Ltd would be the “proverbial hammer to crack a nut”.

The Court cited the following statement from the opinion of the Lord Justice-Clerk, Lord Ross, in Royal Bank of Scotland Ltd v Gillies 1987 SLT 54 as showing the scope of the nobile officium:

“The nobile officium…enables us to exercise jurisdiction in certain circumstances which would not be justified except by the necessity of intervening in the interests of justice.”

After commenting that the nobile officium had been used to alleviate procedural burdens when they were unduly onerous or obstructive, the Court also held that the case was one “of necessity, or such strong and clear expediency as to call for the special intervention of the court”, as it was put by the Lord-Justice Clerk, Lord Patton, in Murray’s Judicial Factor (1869) 7M 670.

The exercise of the nobile officium

Given how helpfully pragmatic the Court’s exercise of the nobile officium was, it may be somewhat churlish to quibble with the supporting reasoning. Unfortunately, there are difficulties with that reasoning.

The correct approach to the exercise of the nobile officium, where it is sought to fill some perceived gap in a statute, was set out by the House of Lords in London & Clydeside Estates Ltd v City of Aberdeen Council 1980 SC (HL) 1. The decision concerned Scottish legislation on compulsory purchase but is, more widely, a significant authority on the consequences of failure to comply with statutory requirements.

In his speech in that case, Lord Fraser of Tullybelton approved, at 36, the statement by the Lord President, Lord Clyde, in Maitland, Petitioner 1961 SC 291, at 292, on the proper use of the nobile officium. The latter case concerned licensing legislation and the statement, as significantly abbreviated by Lord Fraser, was in these terms:

“…to enable justice to be done where, per incuriam, some formal step has been omitted…and it cannot be invoked even by agreement of all parties interested, to enable the court to supplement the statutory procedure by what would, in effect, be an amendment of a statute.“ (Lord Fraser’s emphasis)

It is worth adding that, in the full passage, the Lord President also said that the nobile officium cannot “give a remedy to someone other than the parties to whom Parliament has chosen to give a remedy”.

In his speech in London & Clydeside Estates Ltd, Lord Keith of Kinkel said, at 45:

“The nobile officium does not exist to deal with matters of disputed right. Its chief object is to provide a means of rectifying obvious errors or omissions, principally of an administrative character, which cannot be dealt with in any other way.” (Emphasis added)

Lord Wilberforce and Lord Russell of Killowen expressly agreed with Lord Keith.

Finally, the speech of the Lord Chancellor, Lord Hailsham, referred, at 28 and 29, to the “invocation of the jurisdiction of the jurisdiction peculiar to Scots law which goes under the imposing name of ‘nobile officium’.” (Emphasis added)

The Lord Chancellor then in effect agreed with what Lord Fraser and Lord Keith said on the nobile officium.

The Lord Chancellor’s reference to Scots law confirms a logically prior, and fundamental, point on the nobile officium. How can that jurisdiction ever be exercised in relation to a statutory provision which forms part of English law as well as Scots law?

The decision in London & Clydeside Estates Ltd was not cited in the Opinion of the Court. It is the only appellate authority which has considered the nobile officium and was binding on the Court.

As has already been said, the main authority cited in the Opinion for the exercise of the nobile officium was Royal Bank of Scotland Ltd (above). However, that decision did not concern a perceived gap in a statute but a successful application by a party to have an order in its own favour set aside (“reduced”). Similarly, Murray’s Judicial Factor (above) concerned the extent of the court’s jurisdiction over charitable trusts.

Applying the approach of the House of Lords to the circumstances of A Petitioners, Section 125 of the Companies Act provides for rectification of the register in certain prescribed circumstances. To seek to rectify the register in other circumstances would be to amend Section 125 and would be, therefore, an illegitimate exercise of the nobile officium.

There is an analogy in the provisions of the Companies Acts which have provided for the restoration of a dissolved company within a specified period after dissolution. The nobile officium cannot be used to restore a company after the specified period (Lord Macdonald’s CB 1924 SC 163, distinguishing, and depriving of any content, Collins Brothers & Co Ltd 1916 SC 620).

In addition, rectification under Section 125 involves a person’s title, or right, to be registered as the holder of shares. That is a matter not only of a substantive right but also one of private law, even in respect of a company, which is a statutory creation. In other words, rectification is not an “administrative” matter, to use Lord Keith’s expression, or a “procedural” one, to use the expression at paragraph 13 of the Opinion.

It is, therefore, difficult to see how an exercise of the nobile officium could give the B executors a substantive title to the B shares, given the earlier finding that they did not have such a title, for the purposes of Section 125.

That difficulty with the Court’s approach goes further. If the B executors had no title to intromit with the B shares, it is difficult to see how the nobile officium could in effect authorise them to exercise, after registration but before confirmation, the right to appoint a director; the same difficulty applies to the exercise of any other right attaching to the B shares.

In addition, it appears to be part of the Court’s reasoning in support of the exercise of the nobile officium that the Articles did not give the B executors a right to be registered. That was a most unusual omission from the Articles. Such provisions have been included in every statutory Table A and have to be positively disapplied; equivalent provisions are also standard in free-standing articles.

In any case, the B executors might still have had a right to be registered in respect of the B shares. Such a right is implied into any articles, unless it has been positively removed or restricted by those articles. That is clear from two decisions of the Court of Appeal, neither of which was considered by the Court. The first is Scott v Frank F Scott [1940] Ch 974 and the second is Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1982] 1 All ER, in which the point was conceded. Indeed, an executor’s right to be registered is recognised by Section 770(2) of the Companies Act 2006.

A separate difficulty with the exercise of the nobile officium is that it produces a significant anomaly in relation to an unconfirmed executor. The nobile officium can be exercised in respect of a Scottish company but not in respect of an English company, over which the Court has no jurisdiction. It could not have been the legislative intention to permit such an anomaly. Indeed, the anomaly confirms the fundamental difficulty that the nobile officium cannot be exercised in relation to Section 125 of the Companies Act, which applies equally to a Scottish Company and an English company.

All these difficulties with the Court’s exercise of the nobile officium strongly suggest that, had it applied the binding authority of London & Clydeside Estates Ltd (above), its decision on that issue would have been different. If so, the Court’s decision would not bind the Inner House in a subsequent case; in the technical terminology, the Court’s decision would be per incuriam (for a useful statement of that concept, see the decision of the Court of Appeal in Duke v Reliance Systems Ltd [1987] 2 All ER 858 at 860).

For completeness on the Court’s exercise of the nobile officium, that is the subject of an interesting discussion by Dr Carr in the Edinburgh Law Review (2025 ELR 145). The main point made there is that the decision in effect extended the principles for the exercise of the nobile officium. In short, necessity, in the form of there being no remedy available under the ordinary law, had been required before A Petitioners. After it, that equitable jurisdiction would be exercised also where a remedy was available under the ordinary law but would be disproportionate or “excessive”.

That is a helpful point, although it cannot be taken too far. The statement in Murray’s Judicial Factor (above), which was in fact cited by Carr, does refer to “strong and clear expediency” as an alternative to “necessity”.

The Court’s rejection of Section 125

Reverting to the Court’s reasoning, was it correct to reject Section 125 of the Companies Act as a legal basis for rectification in favour of an unconfirmed executor? The Court’s fundamental difficulty with Section 125 was that it required an applicant for rectification to have a title to the shares in respect of which rectification was sought.

The Court did not cite Nilon Ltd v Royal Westminster Investments SA [2015]2 BCLC 1, a decision of the Privy Council from the courts of the British Virgin Islands on their statutory provision, which was the same as Section 125. That decision states clearly that a transferee of a share must have a title, or right, to registration (see paragraph 51). Logically, an executor must also require such a right, which can be removed or restricted by articles.

Otherwise, the Court seems to have accepted that the other requirements of Section 125 were satisfied, applying to the exceptional circumstances the wide approach that was applied in the trio of English decisions.

There is in fact Australian authority that the Victorian equivalent of Section 125 could be used in the more straightforward situation, where a company did not have a quorate board of directors and executors could not, therefore, exercise their right to be registered (see Re Chas Jeffries & Sons Pty Ltd (1949) VLR 190; that decision is a further recognition of an executor’s right to be registered).

It is worth emphasising that Section 125 gives a discretionary power and its exercise can involve undertakings to the court, as is illustrated in Williams (above).

The difficulties with the Court’s reasoning

The crucial question is, therefore, whether the B executors had the necessary title or right (always understood in a fiduciary capacity) to the B shares. The Court’s answer to that question is attractively straightforward. However, there are difficulties with that answer.

First of all, Section 14(1) of the Succession Act expressly preserved any rule of law then in force. That explains why the earlier authorities on an unconfirmed executor remain relevant. The later vesting provision in the subsection has to be interpreted as subject to those earlier rules and so is not by itself conclusive on the title, or rights, of an unconfirmed executor.

In fact, the primary function of the vesting provision has been to assimilate the earlier law on heritable and moveable property (Garvie’s Trs v Garvie’s Tutors 1975 SLT 94; that decision concerned a notice to quit which had been served by an unconfirmed executor and was held to have been validated by confirmation).

Turning to those earlier authorities, the Court may have interpreted them too narrowly. Chalmers’ Trs (above) concerned the right of an unconfirmed trustee, and so executor, to vote, in a sequestration, against an insufficient offer of composition. That was a substantive matter, not a temporary one, since the vote was decisive in the offer being rejected.

The single opinion in that case was delivered by Lord Ivory (at 1064) and includes this clear sentence:

“The title which these trustees had, though not a title to discharge, nor under which payment could be enforced, is in many respects a perfectly legal title, and is so recognised in law…” [Emphasis added]

Lord Ivory added that enforcement by diligence could be retrospectively validated by confirmation.

In Mackay (above), the references to retrospective validation were to the assignation by the unconfirmed executor of the deceased’s copyright. The right of an unconfirmed executor to sue for a debt is referred to separately, and without any disapproval, in the opinion of the Lord President, Lord Strathclyde.

Given those cases, the title, or rights, of an unconfirmed executor is fairly summarised in Bell’s Principles (10th ed, published in 1892) as follows: “Confirmation is still necessary, in general, for an active title.” The exceptions which are then discussed concern rather arcane diligence.

However, it seems correct to add an exception where there is an urgent need to preserve the asset; “an emergency” is a convenient shorthand. Such an exception must be the underlying rationale for the right of an unconfirmed executor to sue for a debt, which might otherwise become irrecoverable, or to vote in a sequestration to avoid the debt being adversely affected, as in Chalmers’ Trs (above). There is no reason why this exception should not apply also to shares, which are only a bundle of rights, especially where all those with an interest in the shares give informed consent to its application.

It might be legitimately objected that, following registration, an unconfirmed executor would be able to exercise all the rights in respect of the shares, which would be more than the emergency required. However, there is a straightforward solution. The undertaking by the unconfirmed executor would provide that he would not, without the court’s consent, exercise any right as a registered shareholder, and only act to the extent required to deal with the emergency. In the case of the B executors, their undertaking would also have limited them to appointing the additional director as B’s successor.

It must be accepted that the right or title of an unconfirmed executor to act in an emergency is, by definition, exceptional and limited. However, it would, in an emergency, seem sufficient for Section 125 of the Companies Act, particularly for these reasons. First of all, that approach avoids a clear anomaly in the application of Section 125 to a company, whether a Scottish company or an English company. Section 125 would apply to a deceased’s shares where the estate was being wound up under English law but not, before confirmation, where it was being wound under Scots law. In addition, there are even more serious difficulties with the two other possible remedies. The difficulties with the nobile officium have already been discussed, including the further anomaly that the nobile officium must be limited to a Scottish company. The appointment of a judicial factor will never be a practical solution to this kind of emergency.

It is worth emphasising that the B executors could have come within Section 125 only if the Articles did not remove their right to be registered as the holder of the B shares. In that context, any pre-emption rights which the Articles included must have been impliedly waived by permitting the B executors to make their application. It also seems unlikely that the Articles gave the directors of C Ltd a veto on the B executors becoming registered. Even if the Articles did so, there was no quorate board to exercise the veto, as would have been required.

A final point on Section 125 is the statement by Carr (above) that A Petitioners has settled the inability of an unconfirmed executor to use Section 125; the decision could be reversed only by a larger Inner House or by the Supreme Court. However, that would not be so, if the decision were held to be per incuriam, as has already been suggested.

The practical lessons of A Petitioners

Leaving these legal difficulties with A Petitioners, what are the practical lessons of that decision for practitioners? The first is that it is prudent to make express provision in a company’s articles to try to deal with the kind situation which arose in that case. Where the shares in a company are held by two individuals, especially held equally, the inevitable difficulty is that they will die or become incapacitated.

The Consent Article applied to meetings of directors. However, the same potential for paralysis would arise with an article which applied to meetings of registered shareholders or an article which gave a class of shareholders a veto over specified matters. It would be worth addressing the potential of all three kinds of article to lead to the sort of corporate paralysis which arose with C Ltd. The article could be expressly disapplied when the named director had died, or was incapacitated, without being replaced or when no living person was the registered holder of the shares to which the article otherwise applied.

Such a disapplication would involve some risk, since it would remove the intended protection which the article was intended to give against the possibly damaging actions of the remaining directors or shareholders. However, that risk would, in all probability, be outweighed by the greater risk of the company being paralysed.

It is similarly appropriate for articles to provide that a sole director had the power to appoint another director, even where two directors were otherwise required for a quorate meeting.

In addition, it may be very unwise for articles to remove the right of an executor to become the registered holder of the deceased’s shares. A company may require to have a minimum number of registered holders of shares or of a specified class, in order to approve actions of the company which require to be approved. In order to satisfy such a minimum number, an executor might be required to replace a deceased holder. Even the nobile officium could not resurrect the deceased any more than it could restore a dissolved company.

More generally, A Petitioners shows that company practitioners who advise private companies have to bear in mind matters with which practitioners in the private client field are very familiar. First of all, an unconfirmed executor has, in general, no title to deal with the deceased’s assets. Secondly, confirmation inevitably takes time, sometimes significant time, to obtain. Finally, shares of a deceased can reach the ultimate beneficiaries only by transfers by the executors.

Finally, Section 125 of the Companies Act could usefully be amended to provide that, even before confirmation, an executor under Scots law could be registered as the holder of the deceased’s share. As has already been said, the court’s power under Section 125 is discretionary. Accordingly, the court would make such an order before confirmation only in the sort of emergency which arose in A Petitioners.

For completeness, a similar amendment could clarify the right of an unconfirmed executor to make an application under what is now Section 994(2) of the Companies Act 2006 in respect of what is conventionally described as ‘unfair prejudice’. The Court’s reasoning in A Petitioners casts significant doubt on whether an unconfirmed executor has that statutory right.

Written by David Sellar from the Faculty of Advocates